Mortgage Protection Insurance (MPI) is not an optional extra for mortgage holders. Under the 1995 Consumer Credit Act, mortgage lenders are required by law to ensure that borrowers take out mortgage protection insurance in Ireland. Why?
To cover the amount owed on the mortgage should the borrower die before the mortgage is repaid (any extra is passed on to a mortgage holder’s dependants or estate). In the case where two people are named on a mortgage, the insurance is paid when the first person dies.
To avoid a situation in which a borrower’s dependants are left with debts they cannot afford, or have their home repossessed.
The law is on the side of the consumer in this instance and exists to protect against serious financial difficulty, following the loss of a loved one. There are, however, a few exceptions to the law. You are not required to take mortgage protection insurance in Ireland if:
The property you are mortgaging is not your chief residence (investment only).
You are over 50.
You do not qualify for insurance due to serious illness, disability, etc.
You already have life insurance. However, it must be legally ‘assigned’ to a mortgage lender to cover the mortgage.
MPI is paid concurrently with mortgage repayments, and as such it is paid for the same duration, i.e. MPI will be paid for 25 years if the mortgage is for 25 years. There are a few types of MPI, which range in suitability and cost for different types of borrowers. Make sure to consider the details of these when shopping around for mortgage protection insurance quotes. Here is a run-down of the most popular MPI.
A reducing-term mortgage protection policy is fixed to run only as long as the outstanding mortgage term, but the life cover and the amount is designed to reduce alongside the reducing loan too. Simply put, the amount paid upon death of the borrower decreases with the amount owed. This means that only the mortgage debt will be repaid, leaving nothing extra for dependants.
There are more expensive but comprehensive options, such as a level-term mortgage protection policy. A level-term policy is more expensive and is usually taken out on an interest-only or endowment mortgage where the original amount is still owed until the end of the mortgage.
The main advantage of a level-term policy over a reducing-term policy is that the amount paid upon death of the borrower is the amount for which you were initially insured, even if the amount owed on the mortgage is reduced. This provides extra financial security for dependants in the event of the untimely death of a borrower before a mortgage is repaid.
An optional extra to consider when reviewing mortgage protection insurance is serious illness cover, which can be added to your MPI. This means your mortgage will be cleared if you die, or if you are diagnosed with a serious illness that is covered by your policy. Your premium will be considerably higher if you choose to add serious illness cover to your policy. Make sure to compare a mortgage protection quote with serious illness cover to a mortgage protection quote without serious illness cover and evaluate what is the best option for you and your family.
You are not required to take MPI from your mortgage lender, although some people will as it can be more convenient to pay your insurance with your mortgage repayments. However, it has its drawbacks. For instance, if a borrower switches their mortgage, their initial MPI policy would be cancelled by the original mortgage lender with whom they took out the insurance policy. This would mean starting over with a new MPI policy, which could result in higher premiums, especially if the borrower is older or is ill. It is imperative to check whether you will qualify for a new MPI policy before switching mortgages.
If you are topping up your mortgage, you will need insurance to cover the top-up amount for mortgage protection in Ireland. In some cases, it may be cheaper to keep the original policy and buy a separate one for the top-up mortgage rather than adding the top-up amount to the original policy. It is best to shop around in this instance. You may not have the option to buy separate insurance cover, so always check first, particularly if you fall within any of the above risk factors.
If you pay your mortgage before term, you usually have two options:
- Cancel your MPI and stop paying premiums
- Keep your policy and continue to pay
If you continue to pay, some benefit will be paid to your dependants in the event of your death. However, some mortgage lenders may not give you this option and cancel the policy as soon as the mortgage is repaid.
Contact Easy Life Cover today for the best options in mortgage protection that Ireland has to offer.